Slim sales mean plump corporate profits aren't built to last

The economy may still be in the dumps -- don't let yesterday's early reading on gross domestic product fool you into thinking otherwise. But that hasn't kept U.S. companies from posting bigger-than-expected profits. In fact, four out of every five members of the S&P 500 that reported third-quarter earnings in recent weeks exceeded analysts' estimates, according to data compiled by Thomson Reuters.

But what seems like great news at first glance looks a lot less impressive upon closer inspection. Just as many market observers feared before earnings season got underway, plenty of these companies are trimming costs rather than boosting sales, which means they probably won't be able to outperform expectations much longer.

The S&P 500 is vast, but looking at the much smaller Dow Jones industrial average provides a clear view of what's going on. Through this week, 24 of the 30 companies that make up the Dow had reported their quarterly results. And a whopping 21 of them outpaced analysts' predictions in terms of earnings per share.

Yet just 13 reported higher revenue than the market expected. And of the companies that did report sales that beat estimates, not a single one could brag that the margin was as wide there as it was for EPS.

The figures for the S&P 500 are similarly skewed. Some 81 percent of the companies that had reported results so far disclosed EPS that outpaced expectations, versus just 62 percent that could say the same about revenue.

Take Travelers. The insurance giant said it earned $1.61 a share in the third quarter, compared with $1.31 that analysts expected. However, it reported revenue of just $5.34 billion, while analyst estimates averaged $5.82 billion. In other words, Travelers beat EPS estimates by nearly 23 percent while missing revenue forecasts by 8.25 percent.

That's not to say investors were disappointed. Travelers' stock has risen 3.9 percent since the earnings report on Oct. 22, compared with a 4 percent decline for the S&P 500.

All the companies that are pumping up profits while sales shrink will need to get back to top-line growth before investors can be sure any recovery is real. And there's scant sign of that happening anytime soon.